Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the long-term bank facility of ABREL Solar Power Limited (ASPL; part of the Aditya Birla Renewables [ABR] group). The ABR group includes Aditya Birla Renewables Ltd (ABReL), its special-purpose vehicles (SPVs; Aditya Birla Renewables SPV 1 Ltd [ABReL SPV1], Aditya Birla Renewables Energy Ltd [ABReL Energy], Aditya Birla Renewables Solar Ltd [ABReL Solar], Aditya Birla Renewables Subsidiary Ltd [ABRSL], Aditya Birla Renewables Utkal Ltd [ABRUL], ASPL), Aditya Birla Solar Ltd (ABSL) and Waacox Energy Pvt Ltd (Waacox).

 

The rating reflects the strong financial, operational and managerial support received by the ABR group from the parent, Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+) and the long-term tariff structure with Aditya Birla group companies and state counterparties, which enhances revenue visibility.

The rating also takes into account limited counterparty credit risk, with around 88% of the group’s capacity tied up with counterparties that have strong credit risk profiles. These strengths are partially offset by exposure to project execution and stabilisation risks and risks inherent in solar irradiation

Analytical Approach

Based on its criteria for rating entities in homogenous groups, CRISIL Ratings has combined the business and financial risk profiles of ABReL; its SPVs–ABReL SPV1, ABReL Energy, ABReL Solar, ABRSL, ABRUL and ASPL; ABSL and Waacox. The entities, collectively referred to as the ABR group, are in the same business with common management, treasury, and promoter - Grasim. CRISIL Ratings understands that after debt servicing and meeting lenders’ covenants, excess cash flow from the SPVs will be available for future expansion and support. Also, the group is a vehicle to house all the solar renewable power assets of the Aditya Birla group.

 

Also, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of financial, operational and managerial support available to the ABR group from Grasim.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong financial, operational and managerial support from the parent

Grasim has significant control over the management and operations of the ABR group. Captive consumption by key Aditya Birla group entities and centralised resources strengthen the linkages. The parent has infused equity in the past and remains committed to providing need-based support. Over the past three fiscals, Grasim has extended intercorporate deposits to ABReL, ABReL SPV1, ABRSL and ABSL to cover cash flow mismatches, and will remain in control of the ABR group's overall operations and finance. With Grasim as the parent, the group has access to bank funding at competitive rates. The credit risk profile of Grasim, its expansion plans in the renewable energy space and support policy are key rating sensitivity factors.

 

• Diversified presence with healthy execution track record

Commissioning of 195.6 megawatt-peak (MWp) over the past couple of years underpins the strong execution capability of the group. It now has operational solar capacity of 515.5 MWp, with 72.4 MWp under construction and 156 MWp under development. The projects are spread across India in Andhra Pradesh (AP) and Karnataka (south), Gujarat and Maharashtra (west), Madhya Pradesh (MP; central), Chhattisgarh and Odisha (east) and Uttar Pradesh (UP) and Rajasthan (north), thus reducing concentration risk.

 

• Healthy revenue visibility and negligible offtake risk

Assets (around 42% of the total capacity, including operational and under-construction projects) in the ABR group have power-purchase agreements (PPAs) of 22 years with Grasim, UltraTech Cement Ltd (UltraTech; ‘CRISIL AAA/Stable/CRISIL A1+’) and Hindalco Industries Ltd (Hindalco; ‘CRISIL AA+/Stable/CRISIL A1+’) at tariff of Rs 3-4.55 per unit.

 

For the remaining capacity (58%), the group has signed 25-year PPAs at fixed tariff of Rs 2.44 per unit with Gujarat Urja Vikas Nigam Ltd (GUVNL), Rs 2.99-3.06 per unit with Grid Corporation of Odisha (GRIDCO), Rs 2.94-3.05 per unit with Maharashtra State Power Generation Company Ltd (MAHAGENCO), Rs 4.36 per unit with Bangalore Electricity Supply Company Ltd (BESCOM) and Rs 4.92-4.97 per unit with Hubli Electricity Supply Company Ltd (HESCOM).

 

The group had healthy payment track record of less than 30 days in fiscal 2021 and in the first half of fiscal 2022 for around 85% of the total capacity. HESCOM assets (7.6% of the total capacity) continue to see stretched payment cycle of 9-10 months, while MAHAGENCO and BESCOM assets (7.9% of the capacity) have delays of 3-4 months so far in fiscal 2022.

 

Furthermore, in its AP project (1.6% of the capacity), with UltraTech as the counterparty, the group supplies power through open access. While short-term open access (STOA) approval was granted in April 2021, at the time of execution of the agreement, there was a dispute over the applicability of wheeling charges. Subsequently, the company approached the AP Electricity Regulatory Commission and received a favourable ruling. Also, it has executed the STOA agreement and expects to receive pending payments shortly.

 

Upcoming capacities, both captive and non-captive, will mostly use crystalline technology modules which are more reliable. Also, in line with the current assets, projects will likely have a warranty against all manufacturing defects. Presence of counterparties with healthy credit risk profiles for bulk of the capacity enhances revenue visibility and minimises counterparty risk.

 

Weaknesses:

• Moderately weak performance of operational assets

The operating performance of the group (weighted average capacity wise) has remained lower than P90 level on account of multiple project-specific factors. For instance, projects commissioned in Chhattisgarh and Odisha in 2019 reported lesser irradiation levels and disruption owing to storms, resulting in lower than P90 generation. Furthermore, reduced grid availability impacted the generation of projects in Maharashtra. While the group has taken corrective measures to ensure better uptime and protection through deemed generation clauses in PPAs (for the assets in Maharashtra), sustained generation at lower than P90 level is a key rating sensitivity factor.

 

• Exposure to risks related to stabilisation of assets

Around 5% of the assets (26.7 MWp) have an operating track record of less than a year. Furthermore, around 12.3% of capacity (72.4 MWp) is under construction. Thus, the group remains exposed to stabilisation and implementation risks. However, its healthy track record of execution, calibrated expansion strategy, prudent funding mix and support from Grasim aid its business risk profile. Moreover, any expansion is expected to be backed by strong visibility for evacuation and PPAs. Any significant deviation from these will be a rating sensitivity factor.

 

• Susceptibility to inherent risks in solar irradiation

Solar power plants face technology-related risks. Power generation depends on irradiation levels around the plant location and annual degradation in solar panels. Given that cash flow is sensitive to plant load factors (PLFs), the inherent risk could impair the debt servicing ability of solar projects.

Liquidity: Strong

The group’s liquidity remains strong, with expected cash available for debt servicing (including interest) of around Rs 220 crore in fiscal 2023 against debt obligation of around Rs 182 crore. Ongoing projects (except in Waacox) are being financed through 80% debt and 20% internal accrual and equity support from Grasim, with funding already in place. The projects in Waacox have been financed through 70% debt and 30% equity. Most of the project debt has a repayment schedule of 15-20 years, including moratorium of one year for principal obligation, allowing for operations to stabilise. The group will likely follow a similar funding arrangement, with equity support from the parent, for upcoming projects. Moreover, Grasim is likely to provide timely, need-based support.

Outlook: Stable

The ABR group will remain strategically important to, and continue to receive strong managerial, operational and financial support from, Grasim. Stable cash accrual, backed by long-term PPAs and performance of projects at healthy PLFs, should continue.

Rating Sensitivity factors

Upward factors

• Increase in proportion of capital employed in the ABR group to nearly 15% of capital employed of the parent
• Sustained generation profile of the assets in the portfolio, with higher than P-90 generation levels

 

Downward factors

• Change in the support policy of the parent
• Higher-than-expected leverage because of delay in bringing equity to fund future projects, leading to average debt service coverage ratio of less than 1.1 times (at group level)
• Downward revision in outlook or weakening in the credit risk profile of the parent by one or more notches

About the Company

Incorporated on August 7, 2015, ABReL has 270.4 MWp of operational solar capacity in Karnataka (20 MWp), Gujarat (145.4 Wp) and Odisha (105 MWp), and 12.4 MWp of capacity under construction in AP. It has entered into a 22-year PPA with Grasim and 25-year PPAs with GUVNL and GRIDCO. Initially, Aditya Birla Nuvo Ltd (ABNL; part of the Aditya Birla group) held 51% stake in ABReL, and AEIF Mauritius SPV 2 Ltd (AEIF; an Abraaj group affiliate) held 49%. Following the merger of ABNL with Grasim (effective July 1, 2017) and purchase of stake from the Abraaj group (May 2018), Grasim holds the entire stake in ABReL. On June 27, 2018, ABReL acquired 49% stake in Waacox, and on July 5, 2021, acquired the remaining 51%, making it a wholly owned subsidiary. Further, it is developing a 156-MWp solar power plant in Gujarat, with GUVNL as the counterparty, under a new SPV.

 

Incorporated on June 19, 2017, ABReL SPV1 has 77.8 MWp of operational solar capacity in Maharashtra (1.95 MWp), Rajasthan (6 MWp), Karnataka (25.5 MWp), Gujarat (5 MWp), Chhattisgarh (29.8 MWp) and AP (9.6 MWp). ABReL holds 74% stake in ABReL SPV1 and UltraTech holds 26%, which is also a captive power procurer for the entire capacity.

 

Incorporated on April 13, 2020, ABReL Energy has operational solar capacity of 8.6 MWp at Sidhi and 12.5 MWp at Maihar (both in MP). ABReL holds 74% stake in ABReL Energy, while 26% is held by UltraTech, which is also the captive power procurer for the entire capacity.

 

Incorporated on April 10, 2020, ABReL Solar has operational solar capacity of 7.2 MWp in Maharashtra and UP. It is constructing solar power plants in MP (35 MWp) and Maharashtra (7 MWp). ABReL holds 74% stake in ABReL Solar, while Hindalco, the captive power procurer for the entire capacity, holds the remaining.

 

Incorporated on May 8, 2018, ABRSL has 34.2 MWp of solar capacity in Odisha. ABReL holds 74% stake in ABRSL, while 26% is held by Hindalco, the captive power procurer for the entire capacity.

 

Incorporated on May 8, 2018, ABRUL has 7 MWp of solar capacity in Utkal, Odisha. ABReL holds 74% stake in ABRUL, while 26% is held by Utkal Alumina International Ltd, a subsidiary of Hindalco, the captive power procurer for the entire capacity.

 

Incorporated on August 31, 2021, ASPL is constructing a 25-MWp solar capacity in Bolangir, Odisha. ABReL holds 74% stake in ASPL, while 26% is held by Grasim, the captive power procurer for the entire capacity.

 

ABSL was incorporated in 2016 to participate in solar auctions in Karnataka. It has operational capacity of 66.9 MWp. Grasim holds 100% stake in ABSL. Initially, ABNL held 50.1% stake in ABSL, AEIF held 49% and Essel Mining & Industries Ltd (EMIL) held 0.9%. After the merger of ABNL with Grasim (effective July 1, 2017) and subsequent purchase of stake from the Abraaj group (May 2018), Grasim held 99.1% stake in ABSL. In March 2019, Grasim acquired the 0.9% stake held by EMIL in ABSL, making ABSL its wholly owned subsidiary. ABSL is being merged with ABReL, with the scheme of merger filed before the National Company Law Tribunal, Mumbai.

 

Waacox was set up by Sangam Renewables Ltd (Sangam) in 2018 to bid for projects under the solar agriculture feeder scheme in Maharashtra. ABReL acquired 49% stake in the company in June 2018 and executed a shareholding agreement to acquire the remaining 51% from Sangam after one year from the date of commissioning of projects. In July 2021, it acquired the remaining 51% stake, making Waacox its 100% subsidiary. Waacox has 24.2 MWp of operational capacity in Maharashtra, with MAHAGENCO as the sole procurer for the entire capacity.

 

All the solar assets of the ABR group are funded in debt-to-equity ratio of 80:20 (except Waacox at 70:30). ABReL will also be the holding company for all future assets of the ABR group, with the captive power procurer—mainly an Aditya Birla group entity—holding at least 26% share.

Key Financial Indicators - ASPL

As on / for the period ended March 31	Unit	2021^	2020^
Revenue	Rs crore	NA	NA
Profit after tax (PAT)	Rs crore	NA	NA
PAT margin	%	NA	NA
Adjusted debt / adjusted networth	%	NA	NA
Interest coverage	Times	NA	NA

^Company was incorporated in August 2021; assets under the company to commence commercial operations in fiscal 2023

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity level	Rating assigned with outlook
NA	Line of Credit*	NA	NA	Dec-41	90.0	NA	CRISIL AA/Stable

*includes sub-limits in the form of a term loan (Rs 85 crore) and letter of credit (Rs 90 crore)

Annexure – List of entities consolidated

Name of the company	Extent of consolidation	Rationale
Aditya Birla Renewables Ltd	Full	Holding company
Aditya Birla Renewables SPV1 Ltd	Full	Subsidiary
Aditya Birla Renewables Energy Ltd	Full	Subsidiary
Aditya Birla Renewables Solar Ltd	Full	Subsidiary
Aditya Birla Renewables Subsidiary Ltd	Full	Subsidiary
Aditya Birla Renewables Utkal Ltd	Full	Subsidiary
ABREL Solar Power Ltd	Full	Subsidiary
Aditya Birla Solar Ltd	Full	Same parent and similar business with common management and treasury and operational and financial linkages. In the process of being amalgamated with ABReL.
Waacox Energy Pvt Ltd	Full	Subsidiary